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Recent economic data have been the Fed's 'worst nightmare,' economist says

·Anchor, Editor-at-Large
·2 min read
In this article:
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The economy is looking pretty dreadful, and that won't make the Federal Reserve's job any easier as it tries to engineer a soft economic landing, one top Wall Street economist warns.

"I would say that the recent economic data have been central banks' worst nightmare," said Citi Global Chief Economist Nathan Sheets on Yahoo Finance Live (video above). "On the one hand, I would say there is very clear evidence of a slowing in global demand. And on the other hand, there is also clear evidence that inflation pressures are persisting. You kind of put that together, it's really hard for central banks to fight that."

The reads on the economy have collectively painted a picture of a slowing U.S. economy stuck with stubbornly high inflation.

The sun rises over New York City during a solar eclipse on June 10, 2021 as seen from The Edge observatory deck at The Hudson Yards. (Photo by Noam Galai/Getty Images)
The sun rises over New York City during a solar eclipse on June 10, 2021 as seen from The Edge observatory deck at The Hudson Yards. (Photo by Noam Galai/Getty Images)

The Bureau of Economic Analysis (BEA) said last week that second-quarter GDP fell 0.9% as consumers and businesses pulled back on their spending due to rising prices for goods and services. This marked the second-straight quarter of economic contraction after GDP in the first quarter declined by 1.6%.

The back-to-back economic contraction ratcheted up talk that the U.S. was in a recession.

"I wouldn't be surprised if they [NBER] actually push the start of the recession to the end of last year," Dreyfus Mellon Chief Economist Vincent Reinhart said on Yahoo Finance Live. "So we might wind up being in one of the longer recessions on record."

Within the past month, investors also received major profit warnings from big-name retailers such as Target, Walmart, and Best Buy as consumers battle through rising prices for gas, food, and rent. These material profit warnings are an unwelcome sign about consumers' spending decisions.

Bottom line: Conference Board's consumer confidence measure has slipped for three-straight months, stocks remain in bear market land, and massive companies from Tesla to Meta to Amazon are announcing hiring pullbacks.

And to top it all off, the June Consumer Price Index saw its largest gain since November 1982 at 9.1%.

Despite the economic slowdown, the Federal Reserve made it clear at its latest meeting that it would move forward with more interest rate hikes this year to stomp out inflation. In turn, Sheets added, that may lead us towards a situation where unemployment rises while the economy slows down but inflation also remains elevated for a period.

"It feels at the moment that we are going through a period of transitory stagflation," Sheets said.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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